CTE/CTO-Protected Operation Pending Environmental Clearance: No Closure for Bona Fide “Prior-EC” Lapse Where PCB Itself Was Unaware

1) Introduction

Neetu Solvents v. Vineet Nagar & Ors. (Supreme Court of India, 06-05-2026) concerns multiple formaldehyde/formaldehyde-resin manufacturing units operating in Rajasthan and Haryana. The units had been established and were operating on the strength of statutory Consent to Establish (CTE) and Consent to Operate (CTO) issued by the respective State Pollution Control Boards (PCBs).

The dispute originated in proceedings before the National Green Tribunal (NGT) in three Original Applications:

The core allegation was that formaldehyde units were operating without prior Environmental Clearance (EC) under the EIA Notification dated 14.09.2006. After PCBs later took the view that such units fell within synthetic organic chemicals (Schedule 1, Sr. No. 5(f)), they required units to apply for EC within a stipulated timeframe—applications were made and processing (including TOR/public hearing exemptions) had advanced.

The key issue before the Supreme Court was whether the NGT was justified in directing closure/cessation solely for want of prior EC, despite the units having been established/operated under valid CTE/CTO and having applied for EC when the regulatory position was clarified by the PCBs.

2) Summary of the Judgment

The Supreme Court allowed the appeals and set aside the NGT’s closure direction. It held that the matter is governed by the ratio of Pahwa Plastics Private Limited and Anr. v. Dastak NGO and Ors., because:

  • the appellant-units were operating pursuant to valid CTE/CTO;
  • the PCBs themselves were earlier unaware/uncertain about the applicability of prior EC to these units;
  • once directed, the units applied for EC within time and the process had substantially progressed (Screening/Scoping/TOR; public consultation exempted in most cases due to industrial estate location; public hearing completed for two units); and
  • the NGT’s later orders against these units were passed essentially by reliance on Dastak N.G.O., which had already been set aside in Pahwa Plastics.

The Court directed: (i) units may continue operations; (ii) EC applications be decided within one month; (iii) electricity be restored if disconnected (subject to charges), with liberty to disconnect if EC is rejected due to contraventions; (iv) Union of India to intimate within three working days if any further compliance is needed, to be completed within a week.

3) Analysis

A) Precedents Cited

i) Pahwa Plastics Private Limited and Anr. v. Dastak NGO and Ors.

This is the controlling precedent applied mutatis mutandis. The Supreme Court in Pahwa Plastics held that where (a) units were set up with CTE/CTO, (b) PCB itself was under a misconception about EC applicability, and (c) the unit has applied for EC and the process is underway, it would be disproportionate to close operations merely for the “technical irregularity” of absence of prior EC pending issuance of EC.

Importantly, Pahwa Plastics also contains the Court’s formulation that while ex post facto EC is not to be granted “for the asking”, the Environment (Protection) Act, 1986 does not per se prohibit it and limited relaxations may be permissible in appropriate cases where environmental norms are met—especially where closure would have significant consequences and the lapse is entwined with regulatory uncertainty.

In the present case, the Court found factual parity (CTE/CTO granted; EC applied upon PCB direction; TOR granted; public consultation mostly exempt; appraisal pending) and therefore held that NGT’s closure direction (based on Dastak N.G.O.) could not stand.

ii) VANASHAKTI v. UNION OF INDIA and its review: Confederation of Real Estate Developers of India (CREDAI) v. Vanashakti and Another

VANASHAKTI v. UNION OF INDIA had struck down MoEF&CC Office Memorandums (2017 and 2021) that facilitated a route for ex-post facto EC, holding such a concept “alien” to environmental jurisprudence, relying on Common Cause v. Union of India, Alembic Pharmaceuticals v. Rohit Prajapati and Elecctrosteel Steels Ltd. v. Union of India.

However, the later three-Judge review judgment (Confederation of Real Estate Developers of India (CREDAI) v. Vanashakti and Another) held that relevant decisions—specifically D. Swamy (supra) and Pahwa Plastics Private Limited (supra)—had not been brought to notice, and that the “balanced approach” in Common Cause & Alembic had been “lost sight of” in the judgment under review. The review also invoked Bindu Kapurea (supra) to caution against remedies that waste public resources (in that context, demolition).

In the present judgment, this review development is used to rebut the contention that Pahwa Plastics is non-precedential or infirm; the Court treats Pahwa Plastics as continuing to “hold the field” and applies it.

iii) Common Cause v. Union of India, Alembic Pharmaceuticals v. Rohit Prajapati, and Elecctrosteel Steels Ltd. v. Union of India

These cases appear through the prism of Vanashakti and its review. Vanashakti read them as condemning ex-post facto EC regimes; the review underscores that their overall approach was more balanced in remedy—suggesting that while violations must be dealt with strictly, the remedial response should consider legal power, facts, and proportionality (including consequences of shutting down operating projects).

The present decision aligns more closely with the remedial proportionality approach associated with Pahwa Plastics and reaffirmed in the Vanashakti review, rather than a categorical shutdown rule.

B) Legal Reasoning

  1. NGT’s “derivative” reasoning could not survive once its foundation fell.

    The impugned NGT directions against many of the appellant-units were passed by reliance on the NGT’s own decision in Dastak N.G.O.. Since Dastak N.G.O. was set aside by the Supreme Court in Pahwa Plastics, the Court held that continuation of closure directions based on that decision was untenable.

  2. Regulatory bona fides and institutional mistake mattered.

    The Court emphasized that this was not a case of deliberate circumvention. The units were established and operated on the basis of CTE/CTO. Only later did PCBs, upon examining the EIA 2006 Notification, require EC applications. Where the regulator itself was not earlier aware/clear, closure as an immediate consequence was treated as unjustified.

  3. Process-based compliance: units were already deep into the EC pipeline.

    The judgment records that Screening and Scoping were complete; TOR had been granted; public consultation was exempted for most units located in industrial areas; and for two units public consultation had been completed—leaving largely the final appraisal step. This factual posture supported a remedial approach that keeps operations running while compelling a time-bound decision on EC.

  4. Rejection of attempts to distinguish on “employee count”.

    Respondents argued Pahwa Plastics turned on employment impact (asserted as 8000 workers). The Court clarified that the reference to 8000 was not limited to the two units in Pahwa Plastics, but referred to the wider formaldehyde industry units, including those before the Court. Hence, the precedent could not be dodged on that basis.

  5. Repelling the Air Act deemed-consent argument.

    An attempt was made to argue that deemed approval concepts differ under Section 25(7) of the Water Act and Section 21(4) of the Air Act, and thus CTO validity was questionable. The Court held the argument “not germane” where CTO itself was not disputed by the PCBs as the competent authorities.

  6. Remedy structured as “operate + expedite”, with safeguards.

    The Court fashioned a remedy identical in structure to Pahwa Plastics: continued operation pending EC decision, strict timelines for decision-making and completion of any remaining steps, and consequences (including electricity disconnection) if EC is ultimately rejected due to contraventions.

C) Impact

  • Operational continuity as a default interim remedy in bona fide prior-EC lapses.

    For running industrial units with valid CTE/CTO and demonstrated pursuit of EC upon regulatory clarification, immediate closure is disfavoured; the preferred course is expedited EC processing with operations permitted in the interim.

  • Constraining “blanket closure” orders by NGT/authorities.

    The judgment signals that closure orders must account for unit-specific facts and the regulatory history, and cannot merely follow a prior NGT ruling—especially where that ruling has been set aside by the Supreme Court.

  • Clarifying the post-Vanashakti landscape.

    Without re-litigating the legality of executive OMs, the Court reinforces that judicially crafted, fact-sensitive relief (as in Pahwa Plastics) remains viable, especially after the Vanashakti review’s emphasis on missing precedents and the need for a balanced remedial approach.

  • Administrative accountability via timelines.

    The one-month decision deadline and “three working days” intimation requirement are designed to prevent indefinite pendency of EC applications from becoming a de facto punitive closure.

4) Complex Concepts Simplified

  • Environmental Clearance (EC):

    Prior permission required for certain projects/activities under the EIA framework. It is granted after evaluating likely environmental impacts and imposing mitigation conditions.

  • CTE/CTO:

    Permissions issued by PCBs—CTE allows setting up a unit; CTO allows operating it—typically under the Water Act/Air Act regimes with pollution-control conditions.

  • Ex post facto EC:

    An EC sought after a unit has already begun operations. The Court treats this as exceptional: not routine, not automatic, but potentially permissible in limited, fact-specific situations—particularly where the regulator’s own understanding contributed to the lapse and the unit may comply with environmental norms.

  • Four EC steps noted by the Court:
    1. Screening (whether and what kind of assessment is needed)
    2. Scoping (what issues the assessment must cover)
    3. Public Consultation (public hearing/inputs; sometimes exempted in notified industrial estates)
    4. Appraisal (expert evaluation leading to grant/refusal of EC)
  • TOR (Terms of Reference):

    A formal “scope document” telling the project proponent what environmental studies and information must be provided for appraisal.

  • Mutatis mutandis:

    Applying a rule/ratio from an earlier case to a new case with necessary factual adjustments.

5) Conclusion

The judgment establishes a clear remedial principle: where industrial units were set up and operated under valid CTE/CTO, and the absence of “prior EC” stems from regulatory uncertainty shared by the PCB, courts should not order immediate closure if the unit has applied for EC and the process is underway. Instead, the appropriate response is to permit continued operation coupled with time-bound completion of EC processing and strict consequences if EC is refused due to contraventions.

In broader environmental adjudication, the decision reinforces a proportional, compliance-forward approach—ensuring that environmental safeguards are ultimately enforced through EC appraisal, while preventing economically and socially disruptive shutdowns based solely on a “prior-EC” procedural defect in bona fide, regulator-approved operational contexts.